Why the Euro looked like a price booster: Differential perception of increasing versus decreasing prices

The present research examined whether price trend misperceptions can be explained by the differential perception of increasing versus decreasing prices. We expected price increases (losses to consumers) to be perceived as being more intense than price decreases (gains to consumers) of the same relative magnitude. This tendency, in turn, should be positively associated with price trend judgments. To test this reasoning, participants in the first two studies were asked to compare DM and Euro prices. First, participants received a menu containing 21 dishes with German Mark prices, and their price trend expectations were assessed. Then, participants indicated for each dish to what extent the price trend had changed. Finally, participants’ price trend judgments were assessed. In both studies, results indicate that price trend judgments were biased toward rising prices. In addition, price increases were perceived as rising more than price decreases of the same magnitude were perceived as falling. As expected, this tendency was positively associated with price trend judgments, even after controlling for price trend expectations. Study 3 was to replicate these findings in a different domain to demonstrate the general nature and impact of the hypothesized effect.